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Using Financial Records
Cash flow and Final Accounts
Every business needs to record…
- Cash Flow
- Profit
- Net Worth
Note:-cash going in -cash going out -and the cash left
for a given period, such as a month or a year
Cash Flow Records…
Cash in…
… (otherwise known as Receipts) can be anything from sales, to interest earned on savings, the return on an investment or cash from selling an asset, such as a car
Cash out…
… Can be anything from accounting and consultancy costs, to general bills, sales tax (GST) and drawings – the owner’s own wage
Final Accounts
Record…
-Profit
-Net Worth (the business’s value)
Final Accounts are made up of:
• A Trading, Profit and Loss Account
• A Balance Sheet
Trading, Profit and Loss Accounts
Show…
-Gross Profits (funds before sales costs)
-Net Profits (funds after sales costs)
Balance Sheets
Are split into two sections:
Net Worth – showing the value of assets after debts
Financed By – showing how the assets are paid for
Ratio Analysis…
…Is a method of analysing acompany’s performance andhealth
…Gives business owners easilyunderstandable results inpercentages or ratios
…Are used as Key Performance Indicators (KPIs) to compare business health with previous years or other competitors
The Results…
Ratio Analysis primarily focuses on…
- Profitability
- Liquidity
- Efficiency
Profit Ratios…
...Provide percentage margins - the higher the percentage, the more profit/return on investment is being made
Liquidity Ratios…
…Provide real ratios calculated to analyse changes in the ability to pay debts
Two main liquidity ratios are the Current ratio and the Acid Test Ratio
Efficiency Ratios…
…Analyse how well a business uses its assets - the higher the ratio, the more efficient a company is